PPF Telecom is headquartered in the Netherlands, and operates in Czechia, Bulgaria, Hungary, Serbia (Yettel) and Slovakia (O2). The deal which will leave UAE based e& in control of PPF, excluding its Czech business.
e& is controlled by a sovereign wealth fund called the Emirates Investment Authority (EIA), which is in turn controlled by the Unites Arab Emirates, and this where the EU’s worries seem to stem from.
The European Commission launched an investigation into the purchase in June this year under the Foreign Subsidies Regulation, based on preliminary concerns that e& may have been granted foreign subsidies that could distort the EU internal market.
These alleged subsidies take the form of an unlimited guarantee from the UAE and a loan from UAE-controlled banks facilitating the transaction, and these types of subsidies are among the most likely to cause this market distortion, said the Commission at the time.
Following its investigation, it has today announced its findings. It concluded that the foreign subsidies received by e& did not lead to actual or potential negative effects on competition in the acquisition process.
However it also found that they could have led to a distortion of competition in the EU internal market post-transaction. The release reads:
“Under the FSR, unlimited State guarantees are considered ‘most likely to distort the internal market’, and as such liable to distort the combined entity’s activities in the EU internal market. Foreign subsidies benefiting e& and the EIA would thus have artificially improved the capacity of the merged entity to finance its activities in the EU internal market and increased its indifference to risk.
“As a result, the merged entity could have engaged in investments, for instance in spectrum auctions or in the deployment of infrastructure, or acquisitions, thus distorting the level-playing field relative to other market players by expanding its activities beyond what an equivalent economic operator would engage in absent the subsidies.”
To address these concerns, e& and EIA offered up the following commitments:
A commitment that e&’s articles of association do not deviate from ordinary UAE bankruptcy law, thereby removing the unlimited State guarantee.
A prohibition of any financing from the EIA and e& to PPF’s activities in the EU internal market, subject to certain exceptions concerning non-EU activities and “emergency funding”, which will be subject to review by the Commission, as well as the requirement that other transactions between those companies take place at market terms.
A requirement that e& inform the Commission of future acquisitions that are not notifiable concentrations under the FSR.
In a nutshell, the investigators deemed that these commitments remove the existence of the ‘unlimited guarantee’ to e&, and ensure that it and the EIA cannot channel foreign subsidies to the activities of the merged entity in the internal European market after the transaction. The concessions also provide the Commission with ‘appropriate monitoring mechanisms in particular areas of risk’.
It has therefore concluded that the transaction no longer raises competition concerns, as long as the commitments are stuck to.
“Today we adopt our first final decision under the Foreign Subsidies Regulation,” said Executive Vice-President in charge of competition policy Margrethe Vestager. “We found that e& benefited from subsidies from the United Arab Emirates that would give the merged entity an unfair advantage and could distort fair competition in the telecom sector. Today’s decision marks a positive outcome to these proceedings, thanks the parties’ cooperation and willingness to offer a comprehensive set of remedies to address our concerns.”
The deal was announced in August last year, which at the time was valued at up to €2.5 billion. Earlier that year e& said it was in a ‘growth phase’ after some strong 2022 financials, and hinted at its intention to spend some money on acquisitions.
